Stock views on Opto Circuits, GMR Infrastructure, Network 18

Karvy Stock Broking on Opto Circuits - Target Rs 244

Karvy Stock Broking has recommended a buy rating on Opto Circuits India with a target price of Rs 244 in its research report.

"We have increased our target price from Rs 243 on 16x FY10E estimated earnings to Rs 244 on 13x FY11E estimated earnings. The stock is currently trading at a P/E of 12.3x FY10E diluted EPS of Rs 15.4 and 10x FY11E diluted EPS of Rs 18.8. We maintain our recommendation on the stock as a BUY," says Karvy's research report.

Hem Securities on GMR Infra - Target Rs 214

Hem Securities has maintained its buy rating on GMR Infrastructure with a target price of Rs 214 in its research report.


"The company has performed very well although constrain on the margin, which we expect to be on track in the near future. The future growth is expected to come from power and airports. Lower naphtha prices and higher gas availability is further likely to benefit the company. The biggest growth driver is going to be the airport business. The company’s efforts to add new airlines, increase the user development fee and other aero charges will increase revenue. The roads projects help the company to improve their margins, as the margin from roads projects is highest. We are very positive on the long term business prospects of the company and financial performance. We reiterate “BUY” on the stock with target price of Rs 214.00 with a medium to long term investment horizon," says Hem Securities' research report.


Sharekhan on Network 18 - Target Rs 143

Sharekhan has maintained its buy rating on Network 18 Media & Investments with a target of Rs 143 in its research report.

"For the Network18 group FY2009 was a year of severe pressure in terms of both operations and fund availability. In our opinion, things are unlikely to get any worse. With the advertising market showing nascent signs of recovery on the back of considerable easing of the growth concerns among corporate India, Network18’s properties are likely to bounce back. Thus, with Network 18 sufficiently funded to take care of the gestation period of its ventures and the funding requirements of its businesses (especially for Viacom 18), being the holding company of the group it would create significant value for equity holders in the longer term. We maintain our 'Buy' recommendation on the stock with a sum-of-the-parts price target of Rs 143," says Sharekhan's research report.

GMR infrastructure

GMR infrastructure is well geared for substantial growth over the long term fuelled by its power and airport businesses

THERE are a few construction and infrastructure companies, which have been able to generate positive cash flows from operations. This is because of heavily leveraged balance sheets, higher working capital requirements or developmental stage of their projects. This has exposed them to greater risk in the current economic downturn. However, if the company has a clutch of mature and operational projects, resultant steady cash flows is a comfort factor for future funding requirements. GMR Infrastructure, at present, is placed in such a comfortable zone.

BUSINESS:

GMR Infrastructure is engaged in the business of power, airports and highways, which contributed 49.11%, 41.91% and 3.49% in the nine months ended December 2008 . The company is also into commercial real estate development and special economic zone close to 4050 acres. However, the progress is slow due to downturn in the market.

GROWTH DRIVERS:

In the power business, growth is expected to come from FY12 and beyond due to an additional 5,000 MW capacity at eight different locations in India. Further, its existing business is likely to benefit from lower naphtha prices and higher gas availability from the KG basin. The biggest growth driver is going to be its airport business. Hyderabad airport is already operational. The company’s efforts to add new airlines, increase the user development fee and other aero charges will increase revenue. Full development of the Delhi airport will give a boost to the airports business in the long term. The company is targeting to complete all its remaining road projects by March 2009.

CONCERNS:

The company’s airport business is dependent on the growth of the overall traffic growth at the airports. While domestic traffic is unlikely to pick up dramatically, substantially and immediately, the growth in the international passenger traffic is expected to remain steady. International passenger traffic, which formed only 25% and 33% in the total passenger traffic, grew by 8.3% and 9.7% at Delhi and Hyderabad airports, respectively, in the nine months of FY09.

GMR’s consolidated debt-to-equity ratio of 1.3 in FY08 is expected to increase. With the consolidation of Intergen, this will go up substantially. The company is also exposed to refinancing risk of the bridge loan. In a fiscal deficit scenario, where interest rates are expected to remain higher, the company is expected to continue to witness the burden of interest charges, which means subdued profitability.

POSITIVE DEVELOPMENTS:

The government has allowed company to charge the Airport Development Fee (ADF) from departing passengers at the Delhi Airport. The permission to charge ADF of Rs 200 per domestic passenger and Rs 1,300 per international passenger for three years from March 1, 2009 is likely to ease the company’s funding requirement to complete the Delhi Airport project on time before the Common Wealth Games in September 2010. Secondly, GMR Holdings, which holds 73.28% in the company as on December 2008 quarter, has bought 2.7 million of the company (termed as creeping acquisition) in 2009 till date and has increased its shareholding to 74.2% as on February 20, 2009.

FINANCIALS:

In December 2008 quarter, consolidated net revenues jumped 79.28% to Rs 959.15 crore, thanks to significant jump in revenues from power (47.7% rise in revenues) and airports (189.4%). Operating profit witnessed an even higher growth of 91.99% to Rs 287.8 crore. However, net profit declined 36.3% to Rs 64.07 crore after accounting for minority interest, notional forex losses while interest and depreciation costs more than doubled.

OUTLOOK:

March 2009 quarter is expected to be better due to improving passenger traffic following reduction of airfares, recently commissioned Ambala-Chandigarh BOT project and resumption of operations at Vemagiri power plant, which were affected due to lack of gas. However, net profit would remain under pressure due to higher fixed costs. The stock trades at around 2.3 times its price to book value for FY10. Though this is on higher side, the company’s real growth will start from FY11 and beyond, as its power and airport projects, which are at various stages of completion, start contributing . Hence, longterm investors should accumulate the stock.

BUILDING BLOCKS

• GMR has two domestic airports at Hyderabad, Delhi and one international airport—Istanbul (Turkey) under its fold
• It is also into power sector with 11 projects out of which three in—Chennai, Karnataka and Andhra Pradesh—are operational with a total capacity of around 800 MW
• Highways segment consists of 6 build-operate-transfer (BOT) projects totalling to 422 kilometres, out of which, four projects, including three annuity-based and one toll based, are operational
• While growth in the revenues will be robust over the next few years, higher fixed costs could constrain rise in net profit
• GMR acquired 50% stake in Netherlands-based Intergen with the power generation capacity of 7658 MW in June ’08. This marks GMR’s entry into the UK, the Netherlands, Mexico, Philippines and Australia. However, debt levels are likely to rise substantially on consolidation due to a bridge loan of $954 million
  

Stock views on Texmaco, GMR Infrastructure, Sun Pharma

KRChoksey on Sun Pharma - Target Rs 1260
KRChoksey Research has maintained its buy rating on Sun Pharmaceutical Industries with a target price of Rs 1260 in its research report. "In Q3FY09, the company’s sales have increased marginally by 14.2% on a Y-o-Y basis to Rs 918.3 crore on the back of decline in the Caraco, the US subsidiary sales by 32%. We maintained our BUY rating to the stock with a target price of Rs 1260.0, implying an upside potential of 19.0%. At the target price, the stock would be valued at 15.5x FY09E EPS of Rs 81.4," says KRChoksey's research report


Prabhudas Lilladher on GMR Infrastructure - Target Rs 81

Prabhudas Lilladher has recommended an accumulate rating on GMR Infrastructure with a target price of Rs 81 in its research report. "We initiate coverage on GMR Infrastructure with an Accumulate rating and a SOTP-based one year target price of Rs 81. Over the past few years, this company has emerged as one of the leading infrastructure developers with key interest in airports, power and road assets. We believe that GMR, though on a learning curve, will be a major beneficiary from the huge investments committed in the 11th plan, and growing aviation sector," says Prabhudas Lilladher's research report.


SKP Securities on Texmaco - Target Rs 117

SKP Securities has maintained its buy rating on Texmaco with a target price of Rs 117 in its research report. "Net sales were up by 3.7% to Rs. 166.5 crores in Q3FY09 over Q3FY08. For nine months, sales were up by 18.2% to Rs. 568.7 crores. Contribution of heavy engineering division in revenues moved up marginally to 81.7%. Results are in line with our expectations and we maintain our BUY recommendation on the stock with a target price of Rs 117 in 12 months," says SKP Securities' research report.

Stock views on ACC, Mundra Port, Idea Cellular, Ambuja Cements, GMR Infrastructure

HSBC on GMR Infrastructure
HSBC maintains the `Underweight' rating on GMR Infrastructure with a target price of Rs 53. There has been no respite in GMR's existing business. GMR's airport business faces: a) continuing decline in air traffic b) continuing delays in real estate development at Delhi airport, impacting fund availability, and c) inability to raise tariff at the Delhi and Hyderabad airports, impacting overall profitability. However, there has been some relief in the power business due to fresh gas supply and lower naptha prices. GMR runs a refinancing risk on the loan at the end of the two-year period. HSBC expects that in order to complete the Delhi airport in time, the government will have to provide incentives to GMR. These incentives might be in the form of allowing it to charge higher user fees or a higher equity contribution to meet the fund requirement. However, given the current financial condition of the airline industry, it would be difficult for the government to increase the charges without opposition from the airline industry. The outlook for the company remains weak given: a) no signs of recovery in airport traffic growth b) the ability to increase airport charges remains dependent on the government's approval c) no improvement in real estate outlook d) potential difficulties in refinancing its acquisition.

Merrill Lynch on Ambuja Cements

Merrill Lynch maintains `Underperform' rating on Ambuja Cements due to lack of upside triggers. Ambuja's CY09 earnings decline will likely be modest versus other majors due to a tad better supply-demand outlook for west India. Ambuja sells ~30-40% of volumes in the west, which is forecast to witness fewer capacity additions versus other regions. However, exposure to the north will likely hurt. Ambuja's CY08 EBITDA stood at ~Rs 1,770 crore, down ~13% y-o-y due to cost-led margin pressures. The company indicated that high-cost coal inventories, greater use of imported coal and year-end adjustments/provisions dragged 4Q results. 4Q realisations were up 1% y-o-y and 3% q-o-q; cost increase was sharper at ~10-12%. Volumes grew 5% y-o-y and 16% q-o-q. In its 4Q press release Ambuja said the industry's demand growth in CY09 will range between 6-8%. This compares with 11-12% volume growth witnessed in November-December 2008, likely led by pre-election government spending. Reflecting the pattern of previous election years, we worry that the recent demand impetus will ease in 3-4 months as elections draw closer.

Indiabulls Securities on Idea Cellular

Indiabulls Securities has reiterated the `Hold' rating on Idea Cellular, however, it has downgraded the target price to Rs 49. Idea ended the third quarter with a handsome topline growth of 13.1% q-o-q, backed by a robust 13% share in the all-India net additions of 38 lakh and a 3.7% improved realisation of 65 paise per minute. Idea's market share (excluding Spice) is to inflate beyond 11% by March 2010 from the current 9.9%. The company's share of the market net additions is likely to peak at 14-15% in FY10, given the upcoming roll-outs in five new circles and the overwhelming response received for the roll-out in Bihar and the re-branding in Punjab. Moreover, Idea's brand, which has all-India recognition, renders it a competitive edge over the other entrants in the new circles. The operating margin will likely remain under pressure in FY10E-11E and is expected to come down to ~11% as Idea opts for higher opex rather than capex for network expansion. In addition, intensifying competition and penetration in Class C circles calls for competitive pricing, which would further bring down ARPUs to around Rs 250 and Rs 210 for FY09E and FY10E respectively. While the company's business model points towards a strong longer-term growth trajectory, the upcoming congestion in the telecom market would exert significant strain on its key operating and financial parameters, thereby limiting major upsides in the stock price.

Citigroup on Mundra Port

Citigroup initiates `Sell' rating on Mundra Port and Special Economic Zone (MPSEZ) as the stock looks expensive. MPSEZ is a private port (capacity ~55 mtpa) on India's west coast:
1) Strategically located for north-bound cargo;
2) Handles more container volumes than all major ports, except JNPT and Chennai;
3) Has one of the deepest drafts;
4) ~40% of projected volumes are under long-term contracts; and
5) SEZ over ~32,000 acres should support volume growth.

Cargo/profits growth has been impressive at 53%/132% CAGR over FY04-08. Citigroup expects cargo, revenues and profits to grow at 17%, 25% and 47% respectively over FY09-11E, and RoEs to improve to 24% by FY11E from 11% in FY08. While Citigroup forecasts healthy cargo growth at MPSEZ, they see risks in the medium term given the deteriorating global environment. Volumes at major ports grew only by 4% y-o-y in April-November 2008 and fell 28% y-o-y in December 2008 at the DP World-operated container terminal at Mundra. A pullback in investments would hit development of the SEZ, a growth driver for the port. We value: 1) the port at Rs 262/sh; 2) SEZ at Rs 22/sh; 3) investments in subs at Rs7/sh. MPSEZ trades at 24x FY10E PE, a premium of ~85% to Asian ports' average of ~13x, which we find excessive despite EPS growth of 47% over FY09-11E versus the Asian average of -1%. Upside risks include better-than-expected traffic growth and demand for land at the SEZ.

Macquarie on ACC

Macquarie lowers the rating on ACC from `Neutral' to `Underperform' in the absence of cost-reduction levers and the stock lacks any positive catalyst except for cement prices. It believes that the current rally in the stock along with an improved business outlook is a good opportunity to book profits. ACC declared its CY08 results, which were about 11% below the estimates at the operating level due mainly to lower volumes and higher costs. Macquarie reduces the target price by 2% to Rs 452 to factor in lower volumes for the next year and also reducing CY09 and CY10 estimates to account for lower volume expectations because it foresees some delays to expansion plans. ACC has already exhausted the easy ways to reduce costs because most of its production is based on domestic subsidised coal. It already has coal-based captive power plants and it is reaching saturation in blending. The only major avenue is a merger with its sister concern, Ambuja Cements. The majority of 7 mtpa of further expansion will not be completed until CY10. ACC will, at best, grow in line with the industry.